NOTE 9 – SEGMENT INFORMATION

Segment Information

Our sales are primarily comprised of training and consulting services. Our internal reporting and operating structure is currently organized around two divisions. The Enterprise Division, which consists of our Direct Office and International Licensee segments and the Education Division, which is comprised of our Education practice. Based on the applicable guidance, our operations are comprised of three reportable segments and a corporate services group. The following is a brief description of our reportable segments:

Direct Offices – Our Direct Office segment has a depth of expertise in helping organizations solve problems that require changes in human behavior, including leadership, productivity, execution, trust, and sales performance. We have a variety of principle-based offerings that help build winning and profitable cultures. This segment includes our sales personnel that serve the United States and Canada; our international sales offices located in Japan, China, the United Kingdom, Australia, and our new operations in Germany, Switzerland, and Austria; our government services sales channel; and our public programs operations.

International Licensees – Our independently owned international licensees provide our offerings and services in countries where we do not have a directly-owned office. These licensee partners allow us to expand the reach of our services to large multinational organizations as well as smaller organizations in their countries. This segment’s results are primarily comprised of royalty revenues received from these licensees.

Education Practice – Centered around the principles found in The Leader in Me, the Education practice is dedicated to helping educational institutions build a culture that will produce great results. We believe these results are manifested by increases in student performance, improved school culture, decreased disciplinary issues, and increased teacher engagement and parental involvement. This segment includes our domestic and international Education practice operations, which are focused on sales to educational institutions such as elementary schools, high schools, and colleges and universities.

Corporate and Other – Our corporate and other information includes leasing operations, shipping and handling revenues, and certain corporate administrative expenses.

We determined that the Company’s chief operating decision maker is the Chief Executive Officer (CEO), and the primary measurement tool used in business unit performance analysis is Adjusted EBITDA, which may not be calculated as similarly titled amounts disclosed by other companies. Adjusted EBITDA is a non-GAAP financial measure. For reporting purposes, our consolidated Adjusted EBITDA may be calculated as our income or loss from operations excluding stock-based compensation, depreciation expense, amortization expense, and certain other charges such as adjustments for changes in the fair value of contingent liabilities from business acquisitions. The Company references this non-GAAP financial measure in its decision making because it provides supplemental information that facilitates consistent internal comparisons to the historical operating performance of prior periods and we believe it provides investors with greater transparency to evaluate operational activities and financial results.

Our operations are not capital intensive and we do not own any manufacturing facilities or equipment. Accordingly, we do not allocate assets to the reportable segments for analysis purposes. Interest expense and interest income are primarily generated at the corporate level and are not allocated. Income taxes are likewise calculated and paid on a corporate level (except for entities that operate in foreign jurisdictions) and are not allocated for analysis purposes. We periodically make minor changes to our reporting structure in the normal course of operations. The segment information presented below reflects certain revisions to our reporting structure which occurred during fiscal 2019. Prior period segment information has been revised to conform with our current reporting.

We account for the following segment information on the same basis as the accompanying condensed consolidated financial statements (in thousands).



		Sales to
Quarter Ended		External				Adjusted
May 31, 2019		Customers		Gross Profit		EBITDA

Enterprise Division:
Direct offices	$	40,387	$	29,836	$	4,520
International licensees		3,014		2,432		1,281
		43,401		32,268		5,801
Education practice		11,088		6,846		(181)
Corporate and eliminations		1,517		550		(2,549)
Consolidated	$	56,006	$	39,664	$	3,071

Quarter Ended
May 31, 2018

Enterprise Division:
Direct offices	$	36,331	$	26,444	$	2,190
International licensees		3,543		2,735		1,651
		39,874		29,179		3,841
Education practice		9,235		5,501		(901)
Corporate and eliminations		1,352		236		(2,352)
Consolidated	$	50,461	$	34,916	$	588

Three Quarters Ended
May 31, 2019

Enterprise Division:
Direct offices	$	115,271	$	84,200	$	10,703
International licensees		9,598		7,515		4,127
		124,869		91,715		14,830
Education practice		31,132		18,668		(1,355)
Corporate and eliminations		4,190		1,429		(6,272)
Consolidated	$	160,191	$	111,812	$	7,203

Three Quarters Ended
May 31, 2018

Enterprise Division:
Direct offices	$	103,802	$	75,886	$	5,913
International licensees		9,909		7,601		4,222
		113,711		83,487		10,135
Education practice		27,418		16,094		(2,894)
Corporate and eliminations		3,810		947		(6,717)
Consolidated	$	144,939	$	100,528	$	524

A reconciliation of our consolidated Adjusted EBITDA to consolidated net loss is provided below (in thousands).



	Quarter Ended				Three Quarters Ended
		May 31,		May 31,		May 31,		May 31,
		2019		2018		2019		2018
Segment Adjusted EBITDA	$	5,620	$	2,940	$	13,475	$	7,241
Corporate expenses		(2,549)		(2,352)		(6,272)		(6,717)
Consolidated Adjusted EBITDA		3,071		588		7,203		524
Stock-based compensation expense		(1,051)		(446)		(3,040)		(2,182)
Increase in contingent consideration liabilities		(1,069)		(136)		(1,145)		(789)
Licensee transition costs		-		-		(488)		-
ERP system implementation costs		-		-		-		(855)
Depreciation		(1,556)		(1,267)		(4,806)		(3,547)
Amortization		(1,259)		(1,326)		(3,797)		(4,117)
Loss from operations		(1,864)		(2,587)		(6,073)		(10,966)
Interest income		8		35		30		94
Interest expense		(562)		(738)		(1,817)		(1,979)
Discount accretion on related
party receivable		-		202		258		258
Loss before income taxes		(2,418)		(3,088)		(7,602)		(12,593)
Income tax benefit		394		554		704		4,927
Net loss	$	(2,024)	$	(2,534)	$	(6,898)	$	(7,666)

Revenue by Category

The following table presents our revenue disaggregated by geographic region (in thousands).



	Quarter Ended				Three Quarters Ended
		May 31,		May 31,		May 31,		May 31,
		2019		2018		2019		2018

Americas	$	44,919	$	38,531	$	125,676	$	109,283
Asia Pacific		7,914		8,337		24,592		25,827
Europe/Middle East/Africa		3,173		3,593		9,923		9,829
	$	56,006	$	50,461	$	160,191	$	144,939

The following table presents our revenue disaggregated by type of service (in thousands).



Quarter Ended		Services and						Leases and
May 31, 2019		Products		Subscriptions		Royalties		Other		Consolidated

Enterprise Division:
Direct offices	$	26,295	$	13,363	$	729	$	-	$	40,387
International licensees		403		-		2,611		-		3,014
		26,698		13,363		3,340		-		43,401
Education practice		5,065		5,564		459		-		11,088
Corporate and eliminations		-		-		-		1,517		1,517
Consolidated	$	31,763	$	18,927	$	3,799	$	1,517	$	56,006

Quarter Ended
May 31, 2018

Enterprise Division:
Direct offices	$	24,842	$	11,137	$	352	$	-	$	36,331
International licensees		811		-		2,732		-		3,543
		25,653		11,137		3,084		-		39,874
Education practice		4,425		3,732		1,078		-		9,235
Corporate and eliminations		-		-		-		1,352		1,352
Consolidated	$	30,078	$	14,869	$	4,162	$	1,352	$	50,461

Three Quarters Ended
May 31, 2019

Enterprise Division:
Direct offices	$	74,405	$	38,453	$	2,413	$	-	$	115,271
International licensees		1,793		-		7,805		-		9,598
		76,198		38,453		10,218		-		124,869
Education practice		11,565		16,644		2,923		-		31,132
Corporate and eliminations		-		-		-		4,190		4,190
Consolidated	$	87,763	$	55,097	$	13,141	$	4,190	$	160,191

Three Quarters Ended
May 31, 2018

Enterprise Division:
Direct offices	$	71,823	$	30,236	$	1,743	$	-	$	103,802
International licensees		1,870		-		8,039		-		9,909
		73,693		30,236		9,782		-		113,711
Education practice		12,606		11,214		3,598		-		27,418
Corporate and eliminations		-		-		-		3,810		3,810
Consolidated	$	86,299	$	41,450	$	13,380	$	3,810	$	144,939